Calpine asks court OK to repay all $646.11 million first-lien debt principal with asset sale proceeds

By Caroline Salls

Pittsburgh, April 20 - Calpine Corp. requested court approval to repay up to $646.11 million in first-lien debt principal, which constitutes the entire amount of outstanding principal of its first-lien debt, despite noteholder objection, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, the first-lien noteholders have objected to the planned repayment because they say the company does not intend to satisfy the lenders' demand for a make-whole premium payment.

Calpine said the proposed repayment does not trigger any make-whole obligation and allowing immediate repayment of the first-lien debt and postponing any litigation related to the make-whole issue would significantly benefit the company.

The company said it would benefit by stopping its continued losses arising from the negative interest rate spreads between its various capital sources and obligations.

Specifically, Calpine said the $412 million in proceeds from its July 2005 sale of all of its domestic oil and natural gas reserves that it plans to use to repay the first-lien debt principal is earning interest in a designated control account at an average rate of 4.42%, but the interest on the debt is 9.625%, for a loss of $413,000 per week.

In addition, the company may seek approval to borrow up to an additional $233.70 million from its debtor-in-possession facility to pay the rest of the first-lien debt principal, which would save it $77,500 per week.

Calpine said repaying the debt would also reduce the $350,000 incurred in administrative expenses each month in paying the first-lien noteholders' professional fees.

Calpine issued $785 million of 9 5/8% first-priority senior secured notes due 2014 on Sept. 30, 2004.

A hearing is scheduled for May 10.

Calpine, a San Jose, Calif., power company, filed for bankruptcy on Dec. 20. Its Chapter 11 case number is 05-60200.

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